Off-river Pumped Storage Plants exempt from environmental impact assessment

India has released its long-awaited draft guidelines for setting up pumped storage plants (PSPs) in the country and has exempted off-river plants from having to conduct environmental impact assessments (EIA), which was mandatory until now.

The document, a copy of which is with Moneycontrol, stated that only a public hearing would have to be conducted for grant of environment clearance to both off-stream open-loop and closed-loop pumped storage projects.

“The off-river (also known as off-stream) PSPs are located away from the river course and have minimal impact on the riverine ecology. Hence, they may be treated differently for grant of environmental clearance (EC). PSP projects where both reservoirs are built off-river (off-stream closed-loop), or where one reservoir is built off-river and the existing on-river reservoir undergoes minor structural modification to connect it with the new reservoir (off-stream open loop), may be treated as B-2 category projects. Such projects may be exempted from the Environmental Impact Assessment (EIA) and public hearing, and may only require the preparation of an Environment Management Plan (EMP),” read the draft guidelines for which the ministry of power has sought comments from the public.

Moneycontrol was the first to report on January 30 that off-river or off-stream pumped storage projects will be exempted from the EIA. Presently, the environmental clearance and forest clearance (FC) process of PSPs is very cumbersome, since these are treated on par with conventional hydro projects for the purpose of EC and FC.

The environmental impact of PSPs constructed on existing reservoirs on-the-river and off-the-river sites is generally less compared to conventional hydroelectric projects. Further, unlike conventional hydro projects, development of PSPs do not lead to significant displacement of people and thus, require minimum resettlement and rehabilitation (R&R). This is why the government has stated that PSPs constructed on existing reservoirs on-the-river and off-the-river sites are “required to be treated as a separate category — as an infrastructure project — for processing of clearances.”

Another important aspect of the proposed guidelines is that pumped storage projects will be exempt from the free power liability. Free power liability is a rule under which power generation projects, such as hydroelectric projects, are supposed to give certain portion of their generated electricity free to states.

“PSPs are fundamentally energy storage projects designed to cater to grid stability during peak hours. Unlike conventional hydro projects, PSPs do not produce electricity. They are net consumers of electricity… Hence, PSPs would be kept out of the liability of free power,” read the draft guidelines.

Pumped storage hydropower plants act like giant batteries and are essential for the storage of renewable solar and wind energy that are mired with problems of intermittency. Such plants use two water reservoirs at different elevations. Water is moved from the upper reservoir to the lower one through a turbine which generates electricity. The system also requires electricity as it pumps the water back into the upper reservoir. Solar and wind energy are used for this. PSPs have a longer operational life of 50-60 years compared to a battery energy storage system.

The guidelines also propose that discarded mines, including coal mines in different parts of the country, could be used for hydro storage and thereby, become natural enablers for the development of hydro pumped storage projects. It also talks about the monetisation of ancillary services such as frequency control provided by pumped storage projects to give a boost to the sector.

Talking about financing such projects, it stated: “As part of the government’s overall market borrowings, sovereign green bonds issued for mobilising resources for green infrastructure may be deployed in the development of PSPs which utilise renewable energy for charging.”

“To ensure that only viable PSPs are taken up for construction under Section 62 of the Electricity Act, 2003, the central government may notify a benchmark cost of storage… for PSPs considering 6-8 hours of operation. This will be based on the prevailing and anticipated difference between peak and non-peak rates. Efforts would be made to ensure that only those PSP projects are taken up for development whose levelised cost of storage is within the benchmark cost of storage,” said the document.

The draft guidelines asks states to exempt land for off-river PSPs from stamp duty and registration fees. "Government land, if available, may be provided at a concessional rate to the developers on annual lease rent basis," the draft guidelines stated.

Presently, the Central Electricity Authority (CEA) has pegged the potential of on-river pumped storage capacity at 103 GW. Besides, a large quantum off-river pumped storage potential is also available, which is being estimated by the CEA.

As of now, eight PSPs (4,745.60 MW) are in operation, four (2,780 MW) are under construction, and 24 projects (2,6630 MW) have been allotted by states which are under different stages of development.

Sandeep Kashyap, Chief Operating Officer, ACME Group, a renewable energy firm, told Moneycontrol that in 2018, India amended its ‘hybrid wind-solar with storage’ policy to clarify that any form of storage – not just batteries – could be used in hybrid projects, including PSPs, compressed air, and flywheels.

“Then, in March 2019, India’s Ministry of Power proposed electricity rule changes to incentivise electricity supply at times of peak demand, a key pricing signal needed to underpin the financial bankability of storage projects. Both government initiatives should accelerate the development of large-scale, environment-friendly pumped storage batteries, which is essential to balance the Variable Renewable Energy (VRE),” he said.

Kashyap said PSPs have a long operating life of 50-60 years and will serve the purpose of not only balancing the VRE, but also meet power demand during peak hours. “PSPs will be useful for the balancing requirements of the national grid and also support the ambitious target of 500 GW RE capacity addition by 2030,” he said.

On February 1, Union Finance Minister Nirmala Sitharaman, in her budget speech, had mentioned that the policy framework for PSPs was on the anvil. She had also talked about offering viability gap funding for battery storage of 4,000 MWh, the details of which are yet to be released.